Delaware Business Litigation Report

Chancery Grants Single-Member Special Litigation Committee’s Motion To Terminate Derivative Claims

In re Baker Hughes, a GE Company, Derivative Litigation, C.A. No. 2019-0201-LWW (Del. Ch. Apr. 17, 2023)
After the Court of Chancery made a pleadings stage determination that the demand was futile, a board of directors delegated its authority over derivative claims to a one-member special litigation committee.  The committee retained independent advisors, conducted a nine-month investigation, and determined the Court likely would hold the transactions at issue were entirely fair and further that prosecution would not be in the best interest of the company or its stockholders.  The committee moved to terminate the derivative action.  Derivative plaintiffs took discovery and opposed the motion to terminate, challenging the committee’s independence, process, and conclusions. More ›

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Chancery Orders Discovery Record Be Made Available to Stockholders in the Settlement Class

In re AMC Entertainment Hldgs., Inc. S’holder Litig., 2023-0215-MTZ (Del. Ch. May 20, 2023)
Under Delaware law, class members are entitled to access to the discovery record to assess the terms of a proposed class action settlement. In addition to confidentiality concerns, the size of a class and the scope of a discovery record present logistical challenges regarding access, particularly if class members are not represented by counsel. More ›

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Chancery Prioritizes Efficiency in Ruling on Discovery Motions

Brown v. Matterport, Inc., 2021-0595-LWW (Del. Ch. Jun. 5, 2023)
The plaintiff sued alleging that the defendants had used lockup restrictions to improperly prevent him from selling shares. The Court of Chancery considered three discovery motions, and the ruling in all three instances focused on the efficiency of the discovery process. More ›

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Chancery Determines That Former Executives Are Not Entitled to Equity Awards Under Separation Agreement

SeaWorld Entm't, Inc. v. Andrews, C.A. No. 2020-0955-NAC (Del. Ch. May 19, 2023)
SeaWorld Entertainment, Inc. granted unvested equity awards to employees. Pursuant to equity agreements, the awards would vest if the company's controller sold its stock above a threshold price and if the company still employed the awardees at the time of sale. Under the terms of the underlying incentive compensation plan, the company had sole discretion to amend any term of the equity agreements, including to treat individuals differently. More ›

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Chancery Denies Sellers’ Claim Against Buyers for Failure to Close, Finds That Sellers’ Award of “Phantom Equity” to Former Employee Breached Merger Agreement Representations

HControl Holdings LLC vs. Antin Infrastructure Partners S.A.S., C.A. 2023-0283-KSJM (Del. Ch. May 29, 2023)
In Delaware, buyers bear the burden of proving by a preponderance of the evidence their claims for breach of a merger agreement, and sellers bear the burden of proving that buyers could not exercise their termination rights because buyers were in breach of their own obligations. In this case, the Court finds for the Buyers and determines that they were entitled to terminate the deal because the Sellers breached representations in the Merger Agreement. More ›

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Chancery Denies Plaintiff’s Request for Advancement and Indemnification Based on the Broad Release and Finds No Success on the Merits under DGCL Section 145(c)

Kokorich v. Momentus, Inc. C.A. 2022-0722-MTZ (Del. Ch. May 15, 2023)
Delaware law establishes mandatory indemnification rights under 8 Del. C. § 145(c) where a director or officer was "successful on the merits or otherwise" in the underlying proceedings. Sections 8 Del. C. § 145 (a) and (b) are enabling provisions that explain what additional rights a corporation can offer. In this case, the Court denies the Plaintiff's advancement and indemnification claims because he released such claims against the Company and did not achieve success on the merits. More ›

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Superior Court Declines to Dismiss Counterclaims Based on “Interrelated Wrongful Act” Clause in D&O Coverage Dispute Arising Out of Viacom-CBS Merger

National Amusements Inc. v. Endurance American Specialty Insurance Co. (Del. Super. April 28, 2023)
In this D&O insurance coverage dispute, the plaintiffs moved to dismiss the defendant insurers' counterclaims, which contended that the "Interrelated Wrongful Acts" clause barred coverage under the present D&O policies for certain merger-related litigation initiated in 2019. That clause deemed interrelated acts a single claim and deemed them to be made in the earliest policy period in which the earliest interrelated claim was made. Defendants' theory was that the merger litigation initiated in 2019 arose from interrelated prior wrongful acts starting in 2016 when the plaintiffs were involved in a battle for corporate control, which were the subject. More ›

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Following Flawed Business Acquisition, Chancery Dismisses Derivative Complaint for Failure to Plead Demand Futility

City of Coral Springs Police Officers' Pension Plan v. Dorsey, C.A. No. 2022-0091-KSJM (Del. Ch. May 9, 2023)
A terrible business decision does not ensure the Court of Chancery will sustain a derivative claim. A derivative plaintiff still must allege that a board of directors wrongfully refused a stockholder's demand to bring suit or that making a demand on the board would be futile because a majority of the board either was interested in the transaction or would face a substantial likelihood of liability for approving the transaction, or was dependent on someone who was interested or faced a substantial likelihood of liability. More ›

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Entire Fairness Standard Applied to Transaction Benefitting Controllers of Controllers

Tueza v. Lindon, C.A. No. 2022-0130-SG (Del. Ch. Apr. 27, 2023)
Because controlling stockholders of Delaware corporations owe fiduciary duties to both the corporation and to its minority stockholders, the Court of Chancery will subject a transaction involving the company to entire fairness review if a controller receives a non-ratable benefit from a transaction. This case confronts a more nuanced question: Does entire fairness apply if the non-ratable benefit goes not to the controller but to a separate entity controlled by the controller's controllers? More ›

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Chancery Court Again Applies Entire Fairness to Claims Challenging SPAC Transaction

Laidlaw v. GigAcquisitions2, LLC, C.A. No. 2021-0821-LWW (Del. Ch. Mar. 1, 2023)
In the aftermath of a SPAC merger, the plaintiff (a public stockholder) brought claims for breaches of fiduciary duty against the SPAC's board and sponsor, as controllers, for issuing an allegedly false and misleading proxy statement. According to the plaintiff, the proxy statement failed to disclose the net cash per share that the SPAC would contribute to the merger, which in turn misrepresented the anticipated value of post-merger shares, and that such information was material to the decisions of public stockholders whether to invest in the post-merger company or to redeem their SPAC investments. Plaintiff alleged that the sponsor and board were incentivized to minimize redemptions in order to secure returns for the sponsor, which purchased a 20% stake in the post-merger company at a nominal price. More ›

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Plaintiff Overcomes Rule 23.1 In Walmart Opioids Litigation Based In Part On Over-Redacted Documents In Books And Records Productions

Ontario Provincial Council of Carpenters’ Pension Trust Fund v. Walton, C.A. No. 2021-0827-JTL (Del. Ch. Apr. 26, 2023)
To assert a derivative claim, a stockholder plaintiff must plead demand futility. The plaintiffs advanced three types of claims relating to Walmart’s distribution of opioids: a Massey Claim (i.e., affirmative law-breaking claim), a Red-Flags Claim (i.e., a species of a Caremark claim), and an Information-Systems Claim (i.e., a species of a Caremark claim). The Massey Claim asserted that Walmart’s directors and officers knew that Walmart was failing to comply with its legal obligations and made a conscious decision to prioritize profits over compliance. The Red-Flags Claim asserted that a series of red flags put Walmart’s directors and officers on notice of Walmart’s noncompliance or potential corporate trauma, but the directors and officers consciously ignored them. The Information-Systems Claim asserted that Walmart’s directors and officers knew that they had an obligation to establish a monitoring system to address a core compliance risk, but consciously failed to make a good faith effort to fulfill that obligation. More ›

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Chancery Rules That Separate Accrual Periods Apply to an Information Systems Caremark Claim in Walmart Opioid Litigation

Ontario Provincial Council of Carpenters' Pension Trust Fund v. Walton, C.A. No. 2021-0827-JTL (Del. Ch. Apr. 12, 2023)
To determine the limitations period under laches, a court must determine when a claim accrued. Delaware courts have considered three different approaches to claim accrual: the discrete act approach, the separate accrual approach, and the continuing wrong approach. More ›

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Chancery Relies on Unanimous Dictionary Entries To Confirm Unambiguity of Supply Agreement

Thermo Fisher Scientific PSG Corp. v. Arranta Bio MA, LLC, C.A. No. 2022-0608-NAC (Del. Ch. Apr. 4, 2023)
The plaintiff and the defendant entered into a supply agreement under which the defendant would manufacture plasmids, a central component for a variety of therapies and vaccines. The agreement included a non-compete provision that would require the defendant to pause its plasmid activities for three years if the defendant was acquired by one of the plaintiff's competitors—defined as a company deriving at least fifty percent of revenue from "biopharmaceutical" development or commercial manufacturing services. The agreement did not define the term "biopharmaceutical." Two years into the agreement, a third party acquired the defendant. The acquirer derived almost all its revenue in connection with small-molecule drugs, with almost no revenue connected to biologics. Plaintiff filed suit, alleging that the acquirer was a competitor and seeking specific performance of the non-compete provision. More ›

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Chancery Orders Defendant to Pay Simple Prejudgment Interest and Reduces the Amount Because of Plaintiffs’ Delays

Ainslie v. Cantor Fitzgerald LP, C.A. No. 9436-VCZ (Del. Ch. Apr. 5, 2023)
Delaware law provides for the interest to be awarded under 6 Del. C. § 2301 in actions seeking compensatory damages, and the rate is fixed by the statute. The Court of Chancery has discretion, however, to adjust the rate and form of interest “as equity requires.” In this case, the Court awards Plaintiffs simple interest and reduces the amount because of the Plaintiffs’ inordinate delays in prosecuting the case. More ›

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Chancery Finds Restrictive Covenant in Stock Purchase Agreement is Unreasonable and Unenforceable

Intertek Testing Servs. NA, Inc., C.A. No 2022-0853-LWW (Del. Ch. Mar. 16, 2023)
Delaware courts do not mechanically enforce non-competes. Instead, the non-compete must be reasonable in scope and duration and advance a legitimate economic interest of the party enforcing the covenant.  More ›

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